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(edited)

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Edited by JJCar

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Equating Russia with the Middle Eastern producers can play a bad joke on the one doing the equating. Russia, unlike Middle Eastern producers, does not need Brent at $80 to make ends meet. It's actually happier with cheaper oil as basic economics would suggest. The same is not true for Middle Eastern producers because they don't really have any other major exports, so they are having a hard time juggling between market share and prices.

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(edited)

On 4/14/2019 at 1:29 AM, Marina Schwarz said:

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Edited by JJCar

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I know. But many readers seem to equate the two, which is a mistake. Not a life-threatening one, of course, so no real problem. If Russia quits the agreement, they will have no choice but to follow suit. Prices will drop anyway, so why risk further market share loss?

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Indeed SA needs around Usd 80 bbl. All producers will be happy with their cuts. As long as market talks about the cuts, prices remain stable.

Fact is that global demand is weakening, we are entering gasoline season and refinery margins fine, both in Europe and US. Libya and Venezuela create uncertainty which means all variables red. This is the time to carefully watch as more rigs, more flexible supply is attracted with this price level. Producers can and will sell upfront paper and secure their margins, logically. As long as cheap money around shale will pump additional volume, we know they cannot expand too much, but they still can. 

The petrochemical companies do not show good numbers (Bayer stock e.g.), hence naphtha cannot maintain the climb and we will see weakening demand for crude coming. Difficult to say when, but I expect within 2 weeks a sharp drop. Do not pay too much attention to crude stocks this week, just think about what has changed fundamentally the lat few months and does this explain the current rally?

To me it seems that the traders are currently not overly long on the paper market is understandable. I do not see a US - China trade deal happening soon. And if so short term this will not create additional demand. The banks in China have to generate more investments, but they are limited by their current exposures.

Perhaps it is wise to follow the SA statements more closely. The more they talk about cuts, the less certain they are prices can hold. Supply and demand are to my opinion in line, with oil inventory at historical levels, so the current price has a big piece of political uncertainty in it. 

So very short term prices can stay at this level with daily news about unrest, social issues, prolonged cuts. Within weeks this story can not hold. 

 

 

 

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